Meep « POWIP

27Jun/115

Public Finance, Unions, and Pensions Roundup 27June2011

GREECE? ISN'T THAT THING OVER YET?

No, it's not. Various parties are having fits over having to deal with reality, and I'm not just talking about the Greek populace.

A vote is being taken on Wednesday (or at least, that's the current schedule) in Greece on their latest austerity package....and this is just to get the short-term cash flows promised in various bailout plans previously.... it doesn't take care of their long-term debt problem.

A Bank of England official warns of bank exposure to PIIGS debt, though my understanding is that French and German banks have it much worse. I like the timing of the stress test results release - I'm thinking it will be coming out right about the time the credit agencies will say Greece is actually in default.

Other eurozone countries aren't looking too hot, either.

Leo Kolivakis writes about many things, some personal, but you should scroll down to item 4, where he talks about Greece. An excerpt:

Let me share with you the ugly reality on Greece's woeful tax collection system. Everyone in Greece knows this, but let me give it to you straight. A close buddy of mine, a radiologist, is now vacationing in Greece with his family. His aunt recently had to replace a heart valve and she slipped an enveloppe of 12,000 euros to the cardiovascular surgeon so he would do it. In Greece, this enveloppe is called "fakelaki" and if you don't have the money, you're dead. Specialist surgeons working at public hospitals are typically the worst offenders, but there are others notorious for accepting huge sums and they declare nothing. And most of them pay off Greek tax collectors who are equally corrupt and greedy.

The U.S. has a long way before getting that corrupt, but those officials deliberately trying to weasel themselves around the rule of law (see the PUBLIC FINANCE section) had best beware and be aware... what you may think is a show of power may be what ultimately undermines it.

GENERIC PENSION ISSUES

Joshua Ruah, the Northwestern prof who has been slicing and dicing public pension obligations in all sorts of ways, has put out a new paper: the revenue demands of public employee pension promises....and he's asked for responses. Here's some of the responses he's gotten so far. And another response (from governmental pension plan administrators) in the NYT.

Stronger pensions disclosures during muni issues? Sounds like a good idea to me. I wonder why he thinks it helps only bondholders -- ask the pensioners of Prichard whether they would've been well-served by better disclosures earlier. Good info protects not only bondholders but also public employees and taxpayers.

PUBLIC UNION INFLUENCE: MELTING! MELTING! OH, WHAT A WORLD!

Our first story comes from across the pond: UK looks to rein in their public unions. This should be fun. I think various U.S. states should take notes, including the bit about not paying union leaders who don't actually work for the state.

Striking Canada Post workers discover that the government has a lot more power than they do. Huh. How did that happen?

(note: Crown Corporations are just government-run and -owned entities. I recently found out that in some provinces, you get regular car insurance through a Crown Corp. Interesting)

What will the unions in Wisconsin do now? I'm thinking whining is a continuing strategy.

Some take the "defeat" in NJ as a harbinger of tough times for public unions across the U.S....meh. Were they all fired? Their pensions repudiated? No. It was hardly a defeat.

Yet.

Buck up, unions - you've got at least one guy on your side.

PUBLIC FINANCE

Laws? Limits? Ceilings? Pfft. Like that could stop a latter-day messiah who has stuff to get done. I'm curious what the legal status of such debt issues would be.... and I bet institutional investors that suck up these issues would like to know this as well.

Though the bondholders are probably a bit more concerned with the CBO cashflow projections.

VDH points out that Thatcher's inevitabilism is coming due: i.e., other people's money is running out. Bribing people with their own money has always been a difficult balancing act to keep up, and the problem has been in the West is that they've not been producing enough people to keep that going. Oh, tant pis.

Ex-mayor of L.A. warns about the coming bankruptcy of cities, agreeing with Meredith Whitney...with you-know-what playing a major role. Some cities think that they see the light at the end of the tunnel...right before they get hit by a train, I'm thinking.

CALIFORNIA

Public employees in Costa Mesa take on "big" boss to win big pensions.... well, if they can hang onto them. These are chickens I wouldn't count on hatching if the nest eggs aren't even there. I guess they'll learn what "municipal bankruptcy" means soon enough. It doesn't mean that pensions get paid, if the plan is underfunded.

California school admins living large in retirement. I am not fond of the "100K PENSIONS!!!" stories, because it's not individual pensions like this that are necessarily breaking the back of plans. You can have a whole bunch of relatively small amounts killing you, if paid to enough people, for long enough. But these things grab headlines, and stir up envy... and it's always amusing to see the politics of envy redound upon those who love to use it themselves (which is often the way.)

FLORIDA

Having to contribute to your benefits to the tune of 3 percentage points? A crippling tax. Oh baybee. Can we use that when the feds want to increase our taxes to pay for the gravy train they want to continue? If that's such a hardship, of course, the workers are always free to quit.

HAWAII

Pension reform bill signed requiring higher retirement ages and service levels.

NEW JERSEY

After the NJ pension reform passes, the lawsuits begin. Huzzah! Let us not forget the tough times lawyers have fallen upon with their loss in the Walmart case.

The unions also promise to hit back in votes. Good for y'all! That means you're going to stop voting for Democrats, right? Or are you just going to admit that you're stuck? (see article for answer - like with the open borders crowd, reparations extortionists, and gay rights activists, they know they're stuck with the Dems. So.... )

Christie taking his victory lap.

John Bury pricks everybody's balloons in this quarrel.

NEW YORK

The legislature continues to debate letting districts borrow money and pretend they're real contributions to the pension plans.

The NYT whines that it was bullying in NJ but it's bargaining in NY. I don't know - sounds like some of the NY unions don't see Cuomo's actions in quite so benign a light.

OHIO

Employees run for the exits, trying to get theirs while they can.

RHODE ISLAND

Yet another group to look at the state's pension mess and give suggestions for a fix. They've been given a task that's well-nigh impossible:

In tackling a subject that ultimately may mean breaking promises, Raimondo has said that any solutions need to ensure fairness among the new employees, veteran workers and retirees. Newer state employees and teachers bear a greater burden now, she says, because most of their contributions to the retirement system pay for their predecessors’ benefits.

Raimondo stresses that solutions must be fair to taxpayers, as well.

What happened to the last set of suggestions? Let's see... raising the minimum retirement age from 59 to 65 (drastic!), and offering up a DC/DB hybrid akin to what federal employees get... shot down even before it got to a legislative committee.

What I'm saying is I'm adding this group to my list of intentions for St. Jude.

Isn't this cute - an "industrial action" from public employees over their pensions being changed. Yes, those schoolteachers are working hard in the mines and the clerks are grinding away with their wrenches. Supposedly, the Tories are asking parents to sub for teachers (yes, I suppose if you've seen it on a Simpsons episode, it's a gimmick).

Some angst over making the women's retirement age the same as men. I always wondered about this -- in the developed countries, women have always lived longer. Why were they given younger retirement ages?

Cross-posted to The Commune.

Meep

Meep is a member of the Irish Catholic mafia, having a suspiciously high number of green-eyed, red-haired friends. While she doesn’t have red hair herself [except when she goes into the sun (rare for any vampire)], she does have green eyes. She’s a raving Papist and is a life actuary on the side [i.e., she counts dead people]. An amateur pain-in-the-ass [willing to go pro!], she likes covering retirement, mortality, math, and education issues.

Tagged as: public finance, public pensions, public unions 5 Comments

25Jun/110

We Welcome No New Overlords

I read a lot from the supposed Masters of the Universe class.

Here's one whining about the supposed authoritarian culture of Wal-Mart. Oh wait - the author is a professor at UCSB. Let's check - does he have tenure? Hmm, he attained professorship at Berkeley the same year I was born. I'm thinking that's a yes.

Anyway, let the unfireable man pity the poor "wage slaves" at Wal-Mart.... wait, you mean they don't have to work at Wal-Mart if they don't want to? That they're not whipped if they don't want to work there? Like actual, factual slaves? Hmmm. Well. I'm sure life isn't supposed to have trade-offs or something.

Here's a different lament, supposedly about how much the Ivy League "elite" sucks, but still assuming there's some sort of class system where the Ivies are on top. BWA HA HA HA. Yeah. I'm sure your Yale degree comes in real handy when the levee breaks. Funny how the universe doesn't give a shit about your estimation of your status.

It is funny how people don't realize how precarious their status is, when it's based on their credentials. Hell, some of the greatest men of history have been thrust aside the moment the public found them inconvenient (Winston Churchill being the most obvious example) -- and that was after they had proved their worth in actual actions! Ask Alcibiades what always being right got him? (oh, and if your "elite education" didn't teach you about the Slick Willy of the ancient world.... you consider yourself well-read? Dude, he's infamous!) Many of these people have no historical perspective, and it serves them right for being blind-sided by the very same things that they supposedly should have learned about.

An endless circle of people telling each other what they want to hear (until the hand of God appears and writes on the wall) is what these institutions are good for, I will agree, and it seems to me they're getting a bit antsy that people outside their circle really don't care what they think about anything. There, there. If it makes you feel any better, few people care what I think, either.

Oh, don't want to be lumped in with the hoi polloi? Tough shit. There are actually no real classes in the U.S., except if you want to point out the legal status of various groups. I will allow that prisoners and illegal aliens are classes, inasmuch they have different sets of rights. But other than that, we're all lumped together.

That's got to burn.

Meep

Filed under: Invincible Ignorance, Rants No Comments

25Jun/112

Want money from Illinois? Get in line.

I mentioned in my last Illinois post that Illinois has been having trouble meeting its regular bills.

How far is it behind in paying? $4 billion, with a B.

International Business Machines Inc. is owed $1.1 million. Office Depot Inc. is waiting for a $660,955 check. And the 17th Street Bar & Grill in Sparta is due $340.52. They are among at least 8,000 vendors including businesses, charities and government agencies waiting months for the state to pay up. At least 114 companies are due more than $1 million, according to documents from Illinois Comptroller Judy Baar Topinka.

While states periodically fall behind in paying Medicaid providers or, in the case of California, rely on bank loans and IOUs, the Illinois backlog has been growing for three years. It's forcing some vendors to fire workers, cut services and, if they can, obtain loans and lines of credit to keep their businesses going while the state takes months to pay.

....
"Banks have refused us a line of credit because of the state," said David Baker, who runs the nonprofit Open Door Rehabilitation Center in Sandwich, Illinois, and is owed $880,000. "We've had a long-time relationship with bankers, but now they wonder 'What if the state never pays you?'"

These are people who are owed for current goods and services. And they are getting screwed. You think Illinois is going to pay late charges or interest owed? (This is learning the risk of having a single or a very large client.... you become beholden to them. Some do have the option of "firing" Illinois as a customer, and others really don't. Not in the short-term.)

So, public employees -- why do you expect to get paid 20 years from now?

I'm not seeing it.

Cross-posted to the Commune.

Meep

Tagged as: illinois 2 Comments

23Jun/110

NIU Pres: Illinois Pols, keep the pension promises… pretty please?

An Illinois University President begs the Illinois legislature to pretty pretty please make sure original pension promises are kept:

Northern Illinois University President John Peters on Tuesday warned current and retired state university workers to brace for possible changes to their pension benefits in the fall.
....
"In my opinion, leaders in public higher education in Illinois must suggest viable alternatives that will address the very real financial distress confronting our pension systems," he said.

Illinois' five taxpayer supported pension systems, including pensions for university workers, are underfunded by $130 billion. To control that debt, lawmakers passed pension reforms this past year that trim costs for future workers.

Kelly Kraft, Gov. Pat Quinn's budget spokeswoman, said this past year's reforms will save $200 billion over the coming decades for future employees, but they do little to address costs associated with current workers and current retirees.

This past spring, leaders in the Illinois House proposed to change current benefits by having current employees pay more for their benefits, see reductions, or have retirees pay for some of their health-care costs. State lawmakers are expected to revisit reforming pensions for current employees in the fall veto session.

But Peters said workers who made their contributions deserve full retirement benefits, and the state hasn't lived up to its promises. He pointed to state lawmakers history for skipping or making partial pension payments to the Illinois pension systems.

"Many individuals on our state Legislature didn't learn that lesson, or maybe they forgot that lesson: Once you make a deal with somebody, you keep it," Peters said.

BWA HA HA HA

Dude, you're in Illinois.

You can try the moral suasion, but I don't think it will find much purchase. Not in Illinois. How much noise were you guys making all those years of contribution vacations? No, if you had made noise, the pols would have rightly pointed out the expense of those benefits and that they would be cut if they really wanted the pensions to be fully funded.

So they kept their traps shut.

They try the legal gambit as well:

Leo Welch, president of State University Annuitants Association, said the Illinois Constitution guarantees that once staff and faculty join the system, their pensions cannot diminished nor impaired.

"We fully support the constitutional provisions that protect current employees, as well as current annuitants," Welch said.

Let me know how well that works in creating money. Oh, it doesn't?

So now you are learning that government promises mean nothing. You cannot make a law that binds future generations, because future generations can say: "Nope. We weren't the people who promised you. We're going to use our money for something else." You can sue all you want, but Constitutions can be amended, and laws and "promises" changed.

Of course, Mr. Prez of NIU has to make these noises, because, like Illinois politicians, he can lose his job. When you have a big employee base that is unfireable (aka tenured), and they get pissed off, you can be run out of the university.

Workers of Illinois, you need to wake up to the fact your power has been pissed away as the money has run out. New York workers have come alive to this. New Jersey workers are still having issues with reality.

So good luck, but Illinois has had trouble meeting its regular operating expenses. When it's current services vs. past services, current will win. What are you going to do, Illinois retirees - strike? Vote for Republicans?

Adjust to your new reality.

Cross-posted to the Commune

Meep

Tagged as: illinois, public pensions No Comments

22Jun/1112

Social Security: Quibbling over Semantics

And, for the nth time, the media digs up the meaningless argument over whether Social Security is a Ponzi Scheme:

Q: Is Social Security an investment Ponzi scheme?
....
Before we can decide if Social Security's structure qualifies it as a Ponzi scheme, a quick definition is in order. A Ponzi scheme "is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors," according to the Securities and Exchange Commission.

Some investors think that the fact that Social Security pays existing investors with cash collected by new investors makes it a Ponzi scheme. But that's not true, says Jack Coffee, professor of law and securities law expert at Columbia Law School. "This is less a question and more an aggressive assertion," he says.

Social Security is not a Ponzi scheme because it wasn't an intentional fraud, he says. In fact, the system has worked as expected since its creation in the 1930s. What's happening now is that, like many corporate pension plans, Social Security is running the risk of being underfunded as obligations grow faster than contributions. But again, Social Security wasn't created with this aim, he says. "It was a system that was quite adequate for a long time," he says.

Actually, not all Ponzi Schemes are intentional frauds. Some pyramid schemes (the other term for the same essential thing) are run by people who do not understand the nature of true investment, as opposed to just moving money around from late entrants to early entrants. They may think they're doing God's work.

Which is the point: when it comes to money, people do not care that you had benign intentions if they get totally screwed over.

Because Social Security has never been a pre-funded plan, unlike public pensions (the Trust Fund is a lie - it's not pre-funding). Social Security is a pure transfer from working people to retirees (and others, but I'll ignore that for now). Fine, we have all sorts of cash transfers from one group to another in our government tax system -- the problem is these cashflows are unsupportable going forward, given that we have other things we want to do as well.

So one can quibble over what exact characterization we want to make, but 1. intentions mean little when the results are so disparate (this holds true for so many areas in politics. Education is a really obvious example.) 2. And the crisis is now (actually, it started last year), not when the fictional Trust Fund runs out.

Cross-posted to the Commune.

Meep

Tagged as: social security 12 Comments

22Jun/110

Public Union (and other) Quickies 22Jun2011 – and my communal debut

Well, I have been test-driving this new communistic (what?) thingie Dan pointed out, and it has one major plus over POWIP: I can get to it from work. So I can post quick-n-dirty at lunch. Yay!

I'm a bit behind-hand cross-posting here due to other publication deadlines I have, but worry not -- my long form pension posts (which require a bit more link harvesting on my part) will still occur about once a week here at POWIP.

So here's what I've been posting about over there:
You didn't quit your state job? Here's some money! - Oklahoma has been shoveling out "longevity bonuses" to the tune of $42 million in 2010, that are given just for sticking around, with no tie to actual performance. People who got subsequently fired also got these bonuses. OK has a budget deficit to the tune of $500 million. Hmmm.

Unions: Why can't we buy pols like we used to?. A NY union finds that the once-sure bet of a Democratic politician lying to get elected (about cutting state jobs and benefits) is no longer so sure once the money runs dry. And that their political endorsement really means little. What, you were going to endorse a Republican? Ha ha ha.

Walmart lawsuit: not a class action - not much comment other than glad that statistics can't be used to "prove" a class or discrimination. I link to my favorite "discrimination" example, involving graduate school admissions at Berkeley.

My inaugural post: 5 Questions on Public Pensions really just 1 Question - which I will reproduce in its entirety below.

But these questions will work very well for the U.S., too:

1. How much should the taxpayer have to contribute to public sector pensions?
....
2. What will the accrual rate for the career average scheme be?
....
3. Will all public sector schemes face the same contribution hikes?
....
4. Will the government introduce primary legislation to put the new framework in place?
....
5. Which price index will the government use to uprate post-retirement pensions?

Putting these into U.S. English, the bottom line is how much should public employees cost?

How much of various risks should the taxpayers pay to take away from public employees? Longevity risk? (pensions paid as a life annuity as opposed to lump sum in cash) Inflation risk? (that's question 5 - relating to cost-of-living adjustments post-retirement) Investment risk? (A guaranteed payment amount at retirement, no matter what the underlying investments do)

There are insurance products that exist in the private market that are there to hedge these risks, either in combination or separately. And the government accounting standards used to value these guarantees put the values at much less than what private insurance companies have to hold in risk capital plus reserves for covering the exact same guarantees.

Because the government doesn't go out of business, supposedly.

Think on that.

Meep

Tagged as: public pensions, public unions No Comments

18Jun/114

AARP on Social Security: Unclear on their Messaging

Yesterday, an interesting story ran in the WSJ re: the AARP and SocSec:

On AARP's Policy Council, a group of volunteers who make policy recommendations to the AARP board, Mr. Rother faced intense opposition from members who see their role as protecting low-income seniors. He also faced resistance from the board.

His argument: Tax increases wouldn't be enough to make the program solvent. The leading proposal for raising taxes -- increasing the amount of income subject to payroll taxes, the central financing mechanism for the program -- would fill less than half the hole. Moreover, Republicans were not going to accept a plan that didn't include benefit cuts. The idea that both tax increases and benefit cuts were needed dovetailed closely with plans put forward by several separate commissions in Washington seeking to ease the U.S.'s long-term fiscal woes.

The shit must've hit the fan, because a different AARP official was putting out statements yesterday afternoon:

In a statement released this afternoon, AARP chief executive A. Barry Rand questioned the story's accuracy.

“Let me be clear — AARP is as committed as we've ever been to fighting to protect Social Security for today's seniors and strengthening it for future generations,” he said.

“Contrary to the misleading characterization in a recent media story,” he added. “AARP has not changed its position on Social Security.”

Mr. Rand noted that the organization is fighting proposals in Washington to trim Social Security in an attempt to shore up the nation's deficit. He stressed that “long-term solvency is the key to protecting and strengthening Social Security for all generations” and that AARP believed that any changes to the program would be phased in slowly and would not affect current or near-term beneficiaries.

A call to the AARP for further comment was not immediately returned.

A Wall Street Journal spokeswoman did not comment and the story was unchanged on the newspaper's website at press time.

Always on top of the news, the NYT pretty much reports the same stuff from yesterday:

Mr. Rother said the group’s stance on possible cuts, which was first reported in The Wall Street Journal in Friday’s editions, should be seen less as a major change in position than as a reflection of the political and financial realities facing the Social Security system and the country as a whole.

“You have to look at all the tradeoffs,” Mr. Rother said, “and what we’re trying to do is engage the American public in that debate.”

He made clear that the group’s willingness to discuss cuts comes with conditions: Reductions in benefits should be “minimal,” they should not affect current recipients and instead should be directed “far off in the future,” and they should be offset by increases in tax-generated revenue.

Nonetheless, the group’s openness to the possibility of unspecified cuts was seen as a significant development by people on all sides of the Social Security question because of AARP’s influence on federal policies affecting older Americans, including Medicare, prescription drugs and many more.
....
While AARP has not issued specific recommendations or figures on how benefit reductions might be carried out, the group’s recent discussions with its members signal support for using increased revenue to fill two-thirds of the projected gap, and benefits reductions for one-third, Mr. Rother said.

As word of AARP’s position set off debate in Washington on Friday, the group’s chief executive, Barry Rand, issued a formal statement saying that the group’s position had not changed in any substantive way and refuting what he described as “misleading” media reports.

“Let me be clear — AARP is as committed as we’ve ever been to fighting to protect Social Security for today’s seniors and strengthening it for future generations,” Mr. Rand said.

While he did not directly address the question of possible cuts in benefits in his statement, Mr. Rand said his group would be working to evaluate any proposed changes in Social Security “to determine how each might — individually or in different combinations — impact the lives of current and future retirees.”

Here is my take:

Notice that no specific benefit cuts are mentioned (or agreed to). At all. In form or amount. Or who would get hit.

I can think of all sorts of adjustments, and so has the American Academy of Actuaries. At one point, the Academy made a specific recommendation to increase the full retirement age for Social Security, but they also have no problem explaining the trade-offs of various reform choices (and how much it would likely help).

What I think is that some groups would like to be part of the Social Security reform discussion more than they prefer ideological purity. The AARP is one of those groups, I bet. I'm telling you right now that groups that are for absolutely no benefit formula changes are not going to be in the discussion. Also, those who are for privatization-only will not be in the discussion. This is just practical politics.

This is a dangerous place for the AARP to be, even vaguely, because while there are all sorts of benefit "cuts" that are less direct than others...and extremely technical (changing how the COLAs are done, making the benefit lower for higher income people, changing the wage indexing in the formula, etc. etc.), some group is going to get whacked. That's the whole point. It's possible to change the benefit formula and make it a skosh more generous for some groups, by the way, and it still work out ... but again, people will hear "benefit cuts" and get cheesed off.

Not my generation so much (yay Gen X, the perpetually screwed, we were never expecting much), but the Boomers and the other old folks.

Well, I don't think y'all are going to be setting cars on fire in the street, and the money has already run out. Forget the fictional Trust Fund - the SocSec cashflow is going the wrong way in terms of cash flows now, which means that yeah, current benefits will get cut in some manner, but I bet they'll use the various indirect means-testing methods to do it and maybe changing COLAs (some SocSec bennies are already taxable, and that's one area they can expand). So there will be benefit cuts, and if you want to be in the actual policy convo, you had best make noises that you're going to negotiate on what those will be.

Anyway the current story looks to me like an internal battle between Rand and Rother over the AARP messaging, and they should've gotten that straight before talking to the press. Even if they were in policy talks with Congress or the White House, they didn't need to go public with it yet. I guess we'll see if Rother is still there after next week, because that's some loose shit right there.

ADDITIONAL: Allahpundit posts on the issue for Hot Air.

ANOTHER PERSPECTIVE: Tom Blumer thinks the AARP may be doing this because of their dumbass move re: Obamacare (and prior blocking of SocSec reform) means they bled a hell of a lot of members who may not have agree with that policy. Guess what, guys? Maybe you would have done better to have stuck to the fricking discount programs and shut up about the politics! What an idea!

I think this is just going to alienate the people who are left in the membership.

Meep

Tagged as: social security 4 Comments

16Jun/117

Public Finance, Pensions, and Unions News Roundup 16June2011

No preface. Just jumping right into it.

GREECE IS THE WORD

Dammit, will they just default already? I guess the German banks (and others) don't want to take the hit, but they're going to have to eventually.

I'm sorry, but the Greek populace doesn't seem to have digested the concept that they can't have hairdressers retiring at age 50 on someone else's dime. What are the supposed austerity measures the Greeks are up in arms about? Let's see: cutting down the public workforce, a slew of increased taxes, selling off state-owned properties/companies. I'd be curious what companies Greece still owns -- and for all I'm ragging on Greece, they had better be careful in selling off their stuff, because there's a prime opportunity for corruption and graft right there. And I would be cheesed off as a Greek citizen if the country didn't get the best possible price for those properties.

Interesting that it's Socialist parties in Europe having to do this.

And by "interesting", I mean "inevitable".

VDH, as someone familiar with both locales, makes the connections between Greece and California.

PROMISES, PROMISES

U.S. digs itself deeper into a hole with regards to financial promises for the future. I tell everybody not to worry about it: those promises will not be fulfilled. Don't you feel better already?

Iceland gives a counterexample to what might be a better way to go compared to Greece (and the U.S.).

HI HO HI HO IT'S OFF TO WORK WE GO

Get used to the idea of working til you die or are totally disabled.

Somebody else putting a positive spin on the whole matter of increasing lifespans. My own attitude is that it's easy for me who enjoys the work I do, but that many people do have difficulty finding fulfillment in their work and would rather just get it over with ASAP. To those people I say: save up.

For good reason, the main financial worry for Americans is their retirement funds, though, you know, if you were really concerned, you could save more. Just a thought.

Also, annuitize, dammit. But that's a story for a different day.

GENERAL PENSION ISSUES

Hey! Lookie here! A report from NCPERS (National Conference on Public Employee Retirement) saying everything is A-OKAY! If you think 76%-ish fundedness (under the current iffy methods of measuring fundedness) is A-OKAY.

But wait -- look at that "response rate": 17% of the plans that responded were state plans out of 215 respondents - which is about 36 or 37 plans . Now that may sound pretty good to you, but given that some states have more than one plan, this may be not that great a response rate. I rather bet none of the Illinois plans (there are 5 of them) responded.

Let's think of the selection bias here. What is the incentive for poorly-performing pension plans to participate in this survey? Hmm? Right.

And then look at what's reported - they talk about the percentage of active employees and annuitants - but there's a bunch of info missing: how many are close to retirement? And look how popular the 8% asset return assumption is (and given accounting standard, this is what they're using to discount their liability cash flows...)

Anyway, some public employees and retirees really don't have much to worry about. And some local governments really do have good fiscal governance. Way to go, guys! I'm not sarcastic there. Good governance should be recognized. But I can't tell it from this survey, sorry. Too many things can hide bad news...

Boo hoo: public employees have to contribute more to their pensions. Of course, all the money is really coming from the taxpayers, but the issue is that they're getting their total compensation cut.

The space program may be over, but the pensions just go on and on.

UNIONS

From Mish: Illinois unions consolidating power.

Wisconsin teachers unions ready to raise hell. Phrase that rubs me the wrong way: "devout Catholic Democrat". You know, I don't have any trouble with devout Catholics who are Democrats, but ugh on the phrasing. I'm not going to even start to unpack that one.

Considering the Wisconsin law re: public employee unions currently is upheld, could NJ follow Wisconsin's example in taking down the public unions? Hey, if that happens, maybe it's even possible in Illinois! What's St. Jude's direct line, again?

CALIFORNIA

Grand jury in San Rafael cheesed off by backdating of benefits. I find this whole "civil grand jury investigating city council behavior" type of oversight intriguing. This is the fourth such investigation - specifically on pension benefits in California - in the past 6 years.

While corrupt elected officials might get their pensions yanked, that's not necessarily true of non-elected officials.

News flash: people get pissed when money and power gets taken away from them.

Lesson from the California lifeguard story: public employees, stay out of the media if you can help it. Trying to keep your salaries under wraps is a lost cause for the most part, so your best bet is to try to have no one notice you at all. It helps not to have ridiculous-sounding work rules, pay, and benefits, by the way.

So there's this big ballot battle going on in San Fran, and all sorts of things have been popping up along the way. One: Social Security costs not necessarily factored in comparisons between proposals. Two: some rich guys are throwing shitloads of money at this.

GEORGIA

Atlanta pension reform, a kind of hybrid plan, gets out of finance committee. This has been a long slog.

ILLINOIS

When last we checked in with Illinois, they punted on reforming their pension system in favor of considering casinos as a revenue-booster. Now they're considering pimping out space on license plates. My, aren't they getting creative in avoiding dealing with their core issues.

Easiest pension reform proposal ever: no pensions for people who can vote on their own pensions. Obviously, one would need to make it a state constitutional amendment to keep the inevitable from occurring. Or have an electorate that's paying attention.

Of course, there's local tax money being used to lobby the state government to try to suck off state funds. This is an interesting parasitic situation.

Not exactly news: Cook County and Chicago pensions are in a sucky fundedness state.

A two-part analysis by Bill Zettler -- looking at what is "fair" to pay to part-time employees with partial careers - i.e., teachers, who work fewer hours than your usual full-time employee and then the other participants of the Illinois state pensions, who really don't do all that much work, either. Especially the politicians.

I'm still sitting around for a verdict in the Blagojevich trial, but in the meantime, Mark Kirk thinks Blago shouldn't get a pension, and a new law that would yank pensions from corrupt pols is being considered in Illinois.... and would do bupkis about Blago.

MICHIGAN

This is what you get for writing a complicated tax law. In trying to tax pension benefits, they tried to keep it "fair", in realizing that many of the pensions were of people who do not get Social Security benefits, and then they tried this complicated thing of carving out non-taxable bits, yadda yadda.... so now there's a constitutionality question on the table for Michigan's pension tax.

I've got a very modest proposal to fix the whole deal: dump all your tax code right now, Michigan, and implement something extremely simple. You're a state, so just implement some flat tax scheme. Don't worry about fairness. Just make the damn thing easy to figure out. And cut your frigging spending.

You're welcome.

Remember that active employee/retiree pie chart from the NCPERS report earlier? And why it's crap? Because it doesn't give info about the near-retired population:
Percentage close to retirement in Michigan
Yeah, that's a hella scary graph, eh? [sorry to mix the regionalisms....] That's just general census figures, not public employees, btw. But that makes it scarier with the pension tax - that potential tax base may just up and move away to avoid said pension tax.

NEW HAMPSHIRE

Because of what has happened in NH, I've been thinking of not posting all these "so-and-so proposed this!", "reform gets out of committee!", etc. stories: NH gov vetoed pension reform bill. I've been reading stories for weeks about the negotiations going on, and =pfft= nixed.

Of course, there was that huge Illinois tease, but that was pretty much a foregone conclusion.

NEW JERSEY

John Bury has been carving apart the most recent proposed NJ pension changes. He notes that what's been put out there will do not much at all in keeping the money from running out, then he takes apart a local editorial which had some credulous authors.

Something may or may not be going on in NJ re: pension reform, but no matter what, the public employee unions there are pissed. John Bury grades the proposals in the bill -- and disaster still looms.

NEW MEXICO

Double-dipping law in NM teaches teachers that all is fair game when the state needs revenue.

NEW YORK

Cuomo proposes pension reform: for new hires. Dude, you're a couple years behind other states at this point. That's the easy step.

Pointing out that it may not be good optics to fire asset managers just because their politics differ from the politicians hiring them.

OHIO

Disgraced officials getting disability pension payouts. Hey, they had no shame when in office, you think they're going to have any compunction once they're being booted out? People tend to be rather consistent in their behavior as adults.

PENNSYLVANIA

Talk about slow on the uptake: Philly is just now getting around to considering altering their DROP benefit....by making it a skosh less generous. Wake me up when you actually consider dropping the damn thing.

A LITTLE WEINER

Others may have dropped the Weiner, but POWIP has no shame -- and there's a public pension connection. Though lil Tony has been in Congress since only 1999, he'd be eligible for a federal pension. The earliest he could get that is in 10 years -- so he'd still need to figure out something to do til then...good luck with that. And he'd better hope for no hyperinflation between now and then.

Meep

Tagged as: public finance, public pensions, public unions 7 Comments

11Jun/112

We Ain’t Got the Money Of

Let me make this easy for everybody.

We, the people, in the form of our various governments, have been making a variety of promises with dollar signs attached... where said dollars would be paid in the future.

We do not have the money to cover those promises, as they are currently constituted. You can get into the squiggly details of discount rates, "bending the cost curve", death panels, soaking the rich, and whatnot, but the bottomline is that the demographics are not favorable and when the demographics were favorable and the promises were made, not enough money was not set aside to fulfill the promises:

The federal government's financial condition deteriorated rapidly last year, far beyond the $1.5 trillion in new debt taken on to finance the budget deficit, a USA TODAY analysis shows.

The government added $5.3 trillion in new financial obligations in 2010, largely for retirement programs such as Medicare and Social Security. That brings to a record $61.6 trillion the total of financial promises not paid for.

This gap between spending commitments and revenue last year equals more than one-third of the nation's gross domestic product.
....
The $61.6 trillion in unfunded obligations amounts to $527,000 per household. That's more than five times what Americans have borrowed for everything else — mortgages, car loans and other debt. It reflects the challenge as the number of retirees soars over the next 20 years and seniors try to collect on those spending promises.

Now, I agree that these promises will not bankrupt the U.S. -- because they likely will not be fulfilled. And this is going to hit with the Boomers, because they are much too big a demographic bulge with too few to follow.

So I'm not particularly worried about things as my expectations are low to begin with. Unsustainable stuff will not be sustained.

But you know, some people may get cheesed off when they don't get 100% of what they expected.

Meep

Tagged as: medicare, public finance, social security 2 Comments

6Jun/114

D-Day Public Pensions, Finance, and Unions 6June2011

We're not all about dick jokes and bitching about pretty people around here.

Well, not only.

WHERE ARE THE GOONS OF YESTERYEAR

Glenn Reynolds notes that public union clerks don't make for the most intimidating union muscle. Ah, instead of good old-fashioned thuggery, they have to go to the more lawyerly fashion of unaccountable judges... until all of a sudden they are accountable. Funny how that happens.

But let's not let it go at that - Althouse asks if Reynolds is calling the Wisconsin public employees a bunch of sissies, and a commenter points out that he's contrasting the old image of union workers as blue-collar workers with little leverage versus cubicle warriors with huge political war chests.

PUBLIC FINANCE

Muni bond issuance down half compared to last year. And it's not because they don't need the money. I like this: "Restricting bond issuance, though, limits a government's ability to spend." "Though"?! That's the whole point, dude. The credit rating dropping, the interest rates increasing, this is a signal to drop the spending, doofus. Yes, I understand the concern about infrastruture, but I bet there's quite a bit of wiggle room in the operational budget from which cash can be wrestled.

"Fun" interactive graphic: sovereign debt contagion. I recommend putting your cursor on the U.S. first and seeing who's exposed to our debt... and see that the risk isn't reciprocated. Bwa ha ha ha. Suckers.

Ireland has lessons for Obama? Silly Richard Wolf. Obama learn something from an entity outside himself? Surely you joke.

By the way, the euro zone hasn't really had its crisis yet.

CALIFORNIA

Liberal-vs-liberal in pension smackdown of the year! San Francisco treat. I call it just deserts.

A councilman who has cutting pensions as a top priority announces his run for San Diego mayor. Oddly, this is a game of Name That Party! It's odd, because pretty much every other politician has his party named in the article. Why not this guy? By the way, he's a Republican.

Special asst to governor (no, not the one dealing with women issues): you know what really helps prevent pension crises? Actually putting adequate money in the pension funds. It works wonders.

COLORADO

Denver could raise retirement age to 60 for city workers. Oh, the humanity!

More on the same.... and scroll to the bottom for a lovely quote from the council president saying that one shouldn't mess with a successful pension system... after all, they need to attract employees. Employees that have lots of options for DB pensions with a retirement age of 55, apparently.

CONNECTICUT

Bridgeport isn't doing so hot. They're asking for permission to make only a $7 million contribution, when the calculated required contribution is $13.5M....and they really would have to pay $24M to make the fund whole. This is how trouble can start.

ILLINOIS

So after the massive fake-out from the state legislature that they were actually doing something about pensions, it's time to regroup and consider the options. It has been noted by various parties that one really big problem is that contributions to the fund have been way too low for the level of benefits being promised. For a fun look at history (sorry this isn't pretty, but the numbers are inherently ugly) - here are the fundedness ratios (total assets / total liabilities) for various pension plans for the past 10 fiscal years:

System, FY2001, 2002, 2003, 2004, 2005, 2006, 2007, 2008, 2009, 2010

Teachers’ Retirement System, 59.5, 52, 49.3, 61.9, 60.8, 62, 63.8, 56, 39.1, 40.5

State Employees’ Retirement System , 65.8, 53.7, 42.6, 54.2, 54.4, 52.2, 54.2, 46.1, 33.9, 31.4

State Universities Retirement System, 72.1, 58.9, 53.9, 66, 65.6, 65.4, 68.4, 58.5, 41.9, 40.2

Judges’ Retirement System, 40.7, 33.7, 30.7, 46.2, 45.7, 46.4, 48.4, 42, 31.2, 28.8

General Assembly Retirement System, 34.9, 29.3, 25.4, 40.1, 39.1, 37.1, 37.6, 32, 22.7, 21.7

All systems, 63.1, 53.5, 48.6, 60.9, 60.3, 60.5, 62.6, 54.3, 38.5, 38.3

[Take a gander at GARS: that's the politicians' pension... now I've got an idea to reduce the state's liabilities....and maybe here's a different way to give them an incentive to do their damn jobs. People are unimpressed by the inaction.]

The Illinois pols' idea of a responsible bet: casinos for Chicago. Double down! Double down!

NEW YORK

Oh, a kerfuffle has poofed in NYC. The Comptroller, who once upon a time claimed to be an actuary (though I can find no record of his ever having had credentials.... I could be wrong, though), has a convenient little report saying that the city pension costs are going to dramatically drop... as a percentage of the city budget. And how does that work out in absolute amount, Mr. Liu? Needless to say, Bloomberg is pissed, because this is taking away negotiation leverage from him....well, if this is at all legitimate.

I haven't read the report itself yet, so I will leave comments on it til a later date. Here's the press release, here's the summary, and here's the full report. People will get hung up on the fund return assumptions (and sure, they should), but I'm more concerned about liability assumptions (so that will take me a while, and I probably don't have enough info to figure out if it's reasonable). But let's see the assumption of the denominator....

To quote the press release:

1.City pension costs will increase nominally through FY 2016, after which they will decline as a percentage of the City’s expenditures and revenues.

Note: In FY 2012, pension cost is $7.3 billion or 11.1 percent of the City budget. By FY 2016, pension cost will rise to $8.3 billion or 11.4 percent of the city budget. The increase in pension cost through 2016 would not be materially impacted by new benefit changes or tiers that are applicable only to new employees

So, basically, there's a projected $1B increase in annual costs projected in a 5 year period. That's quite a bit, don't you think? Almost a 14% increase. So to keep the percentage of the city budget about level, it requires the city budget increasing by the same rate.

And hey, what are the costs as a percentage of salary?

3.The primary reason for declining pension costs is the phasing-in of new employees whose benefits are significantly lower than those offered to municipal workers in the past. Police and Fire Pension Funds will experience the most significant costs decreases over the next 30 years.
■Police will decrease from 65.1 percent of salary in FY 2010 to between 39.2 to 33.4 percent of salary in FY 2040.
■Fire will decrease from 83.1 percent of salary in FY 2010 to between 46.6 to 41.5 percent of salary in FY 2040.

Yeah.... that still sounds pretty high. That's just the pension cost. How much do you put away in your 401(k)? I'm thinking it's not 40% of your gross salary.

RHODE ISLAND

Moody's downgrades R.I. debt based on pension cost issues.

A little bit of history behind Providence's cushy retirement benefits that have all of a sudden become unsupportable. Except it was really 30 years in the making, not something that "just happened".

In particular, there are these nice disability pensions that it seems some rather non-disabled people are collecting.

TENNESSEE

Governor signs bills that squashes collective bargaining for teachers

UTAH

The state wins an award for facing reality. [Yes, it's all politics.]

WASHINGTON

Gentlemen, start your lawyers! Unions look to sue over COLA-removal law.

WISCONSIN

The benefits battle continues, this time with the public safety workers [usually considered untouchable]